By Alex Richardson
SINGAPORE, June 29 (Reuters) - Asian shares rose, with Japanese stocks hitting a seven-week high, and the euro clung to gains on Wednesday on optimism the risk is decreasing slightly that Greece will be the first euro zone country to default on its debt.
There was increased demand for riskier assets such as equities and commodities, and financial bookmakers predicted major European indexes would open around 0.5 percent higher.
"There's some cautious optimism ahead of the Greek votes this week," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management in Tokyo.
"But we're also seeing a lot of month-end window dressing and portfolio tweaking by hedge fund managers ahead of the end of their first-half earnings report."
Japan's Nikkei rose 1.5 percent and MSCI's index of Asia Pacific shares outside Japan gained 1.2 percent, led by a 2.2 percent rise for the materials sector.
Sentiment was also buoyed by gains of more than 1 percent in U.S. markets overnight, though low volumes indicated underlying nervousness there.
The first vote on Greece's five-year austerity plan was due later on Wednesday, with further technical votes expected on Thursday.
The package, which has provoked violent demonstrations on the streets of Athens but won crucial political support on Tuesday, is needed to secure a new tranche of EU/IMF funds to prevent Greece becoming the first developed nation in more than 60 years to default on its debts.
Some analysts cautioned that any respite was likely to be temporary, with many doubts remaining over whether Greece can ever repay its 340 billion euro debt mountain and European leaders can stop other countries from slipping deeper into crisis.
"Greece cannot be salvaged," Viktor Shvets, head of research and chief strategist at Samsung Securities Asia, told Reuters Insider TV.
"Neither, for that matter, can Portugal, Ireland, Spain and potentially Italy, at the end of the day they might need to exit the euro, but for the time being, at least in the short to medium term, the crisis is largely passed."
RATE DIFFERENTIAL
The euro bought around $1.4362, having risen close to $1.44 in U.S. trading hours, well above this week's trough around $1.41.
"Traders should be careful of sharp euro volatility ahead of what promises to be a contentious vote that may decide whether Greece avoids default," said David Rodríguez, strategist at DailyFX.
The single currency was also supported by comments from European Central Bank President Jean-Claude Trichet that were interpreted as signalling a July interest rate rise.
Trichet told a news conference the ECB was in "very strong vigilance mode", a phrase that has regularly been used in the past to point to a rate rise at the next monthly meeting.
The ECB began tightening policy in April to head off inflationary pressures, widening the yield differential with the dollar as the U.S. Federal Reserve continued to hold rates at a historic low near zero.
RISK ON, RISK OFF
In recent months, markets have flipped between so-called "risk-on" and "risk-off" modes -- with the former seeing the dollar sold in favour of stocks, commodities and commodity-linked currencies such as the Australian and Canadian dollars, and the latter prompting a return to the dollar and Treasuries.
"We've seen a typical risk-on situation with both the dollar and the yen put under selling pressure. In such a situation, dollar/yen benefited from a rise in long-term Treasury yields," said Tohru Sasaki, the head of Japan rates and forex research at JPMorgan Chase Bank in Tokyo.
"It's hard to tell whether the current mood of taking risk will continue. We still have to look at the outcome of Greece's vote today," Sasaki said.
The dollar edged down to around 81.05 yen , from an overnight high of 81.26.
The flow of money back to equities and commodities reduced demand for safe-haven government debt, with Japanese government bonds falling, following a similar dip in U.S. Treasuries.
September 10-year JGB futures <2JGBv1> fell 0.26 point, while the benchmark 10-year yield rose 3 basis points to 1.115 percent.
U.S. crude oil
"Any positive compromise within Europe, with Greece willing to make some sacrifices, will cause the euro and oil to rally," said Jeremy Friesen, a commodity strategist at Societe Generale. (Additional reporting by Ian Chua in Sydney and Antoni Slodowski in Tokyo; Editing by Richard Borsuk)